- On Oct. 17, Canada lifted the bar on adult marijuana sales, unleashing a potential $5.7 billion legal weed market.
- Investor anticipation was high and they threw so much money into Canadian MJ producers some of these stocks were reached prices as insanely high as 120X sales and 1,900X earnings.
- We find three under-the-radar companies which are set up to be potential bright spots in the newly legal marijuana market.
By most estimates, Canada’s new recreational market will be 8X bigger than its thriving medical market. But most Canadian pot stocks are selling at valuations likely to thud loudly when they fall back to earth. Canopy Growth and Aphria, for instance, both carry market values bigger than the entire marijuana industry—including adult tokers.
There are still a few deals left in this market. These are the handful of stocks that investors have not followed closely enough.
VIVO Cannabis Inc.TM (TSXV: VIVO) (formerly ABcann Global) is one of those MJ stocks which didn't run up like the rest. It has a collection of premium brands across medical and recreational, with large production capabilities.
Supreme Cannabis (V: FIRE) is another one which lagged behind the market a bit. It is selling at a steep discount to its peers despite a lucrative contract to sell product to Tilray (TLRY) the stock with the wildest gains so far this year.
The last one is Choom (CSE: CHOO; OTC: CHOOF) (CHOOM PROFILE), which has the potential to be the best of the bunch.
Choom has remained outside the MJ stock frenzy for the time being and remains\ an undervalued jewel with upside growth potential that rivals the best in the business.
In fact, Choom already has the confidence of Canada’s best MJ companies. Aurora Cannabis (NYSE|TSX: ACB) just invested $20 Million into Choom, following a $7 million investment earlier this year to accelerate Choom's rapid expansion of its sizeable MJ retail business.
That alone is a good indicator of Choom’s position in the MJ retail market which just opened for business.
Cracking Retail Wide Open: Choom (CSE: CHOO; OTC: CHOOF) (CHOOM PROFILE)
Every market has its oddities, and in this one, Choom stands out.
Choom has targeted the western provinces of Canada for the ongoing buildout of its retail store and branded products network, resulting in 45 potential retail opportunities.
Its proving to be a wise strategy too. Only certain provinces are allowing retail stores as the recreational use market opens up. As a result, Choom's concentration covers 74% of the available private retail market authorized by law.
Despite the excellent strategic position, Choom is still a much better value than some of the top-performing Canadian MJ stocks.
Choom has been up 496% in the past year compared to 1,009% for HEXO Corp; 1,193% for Namaste, and 4,152% for Tilray.
The other big gainers worked the PR machines to make much more noise… and sometimes they were a lot more explicit about their plans.
Tilray, for example, secured a well-publicized Nasdaq listing then got much-touted FDA approval to export cannabis to the US for research. The market reacted to repeated news releases as if the company had personally cured the world’s diseases.
Namaste’s was another high flyer. Its e-commerce model put it into the ultra-rich accessories market with worldwide sales of vapes, pens and other tools.
Knowing what each company “does” has been the key to big gains in pot stocks.
Choom has had a strategy from the beginning that was a little harder for investors to warm to—“acquire and develop growing and retail assets.”
Well, who in the Canadian MJ universe wasn’t? Even Choom’s admirers have to admit that doesn’t sound very sexy, and until recently, it wasn’t very clear what it would mean.
That's all changed now though. The Canadian market for Recreational Marijuana officially oppened Oct. 17th, 2018 and retail assets like those Choom has been developing have become more valuable than ever before.
Choom is now on the verge of establishing a huge footprint in the retail market. It can point to four growing sites so far and a fifth location in the future that will be even larger. There’s a lot of good news in the pipeline for investors to discover.
Choom Focused on Fun Before Investors Were Ready
Another subtle point that shouldn’t be overlooked in Choom’s quiet beginning may be subtle, but it probably counts for something. That is Choom’s name and “good times” message, which spoke to its adult-market intent.
The Canadian marijuana stocks started out completely differently from US companies—they were all legal entities, approved and licensed by Health Canada. They appealed to investors who didn’t need to worry the companies they were backing could be raided and seized any moment, a fate that is still technically possible for US MJ companies. As if it to underscore this respectability, Canadian company names are very restrained: Emerald Health, Maricann, Organigram, Emblem, CannTrust….
Then there was Choom—named after the “Choom Gang” of friends who smoked pot, surfed and lived for the good times, Choom was not a medical stalwart. (Read the History of Choom) It was always looking forward to the adult market.
At last, with Canada officially opening adult-use marijuana on Oct. 17, investors are ready for Choom.
Choom Has Coast to Coast Coverage In Sight
So far, Choom has three growing facilities all are either received final approval or are in the late-stage of the approval process.
For the longest time the lack of licensed growing space meant that Choom wasn’t making news when the likes of Canopy Growth and Aphria were on everyone’s radar.
But now, Choom has received its first approval and the rest are expected to come as early as within a few weeks.
This is a big development for Choom as it can show its shareholders its much closer to generating sales and revenues.
Phase 1 of its building plans entails developing 37,300 sq. ft. of indoor growing space in British Columbia capable of producing 3,700 kg dried cannabis per year. In Phase 2, when it will add facilities on Vancouver Island to the BC operation, Choom expects to expand to 68,200 sq. ft. that can produce 6,500 kg of dried cannabis a year.
At a wholesale price of $2,000 per kilo that means $13 million in revenues with all four farms running. That’s a low projection. Supreme Cannabis Co. prices its product at $6-$7 per gram, three times as high[i]. Canopy Growth, selling at $8 a gram is four times as high. So $2,000 per kilo ($2 per gram) is an exceedingly safe benchmark[ii].
Farther out, Choom intends to add 700,000 sq. ft. of indoor and greenhouse space in British Columbia and it has another 120 acres in Saskatchewan lined up.
But it is the retail plan that makes Choom particularly attractive. Not just for investors…That is also the reason that Canada’s second largest MJ company, Aurora Cannabis, took not one, but two big stakes in Choom.
Choom has established 45 retail opportunities in Saskatchewan, Alberta, and British Columbia so far. Quebec, Manitoba, and Ontario are in its sights next. It recently applied to Manitoba for a license that it expects to have in hand soon.
The Aurora Big Deal
Investors may have overlooked Choom, but the industry and accredited investors who have been active in the background are well aware of its potential. In February, its $2.7 million private placement was oversubscribed. Then in June, its $10 million raise included a hefty $7 million investment by Aurora Cannabis. Aurora held about 6% of Choom stock after that deal.
Then, just a few days ago, Aurora came along and made an additional $20 million investment into Choom. The retail MJ race is heating up and Aurora is betting big on Choom for obvious reasons.
Aurora has a history of buying out good prospects. So, a future buyout is definitely a potential with Choom but it’s not the most important point here.
Choom’s deal with Aurora is probably exactly what Aurora says it is—a strategic position. Choom has planted its flag firmly in the western provinces and is almost a sure-shot to acquire rights in the much more populous provinces of Manitoba, Ontario, and Quebec very soon. The company intends to have a coast-to-coast presence and is well on the way to achieving it. Aurora would like a piece of that.
Investors should consider Aurora’s move a high compliment from an industry leader. The two companies first connected through Aurora’s Aurora Pro platform, which provides services to the industry[iii] and allows Aurora to support craft growers and help them enter the market. Aurora invested in Choom with an insider’s eye.
Choom has high upside potential, solid contracts, an ambitious and growing retail footprint and big votes of confidence by industry insiders. For the moment, it also has a bargain price.
[i] http://s22.q4cdn.com/498896478/files/doc_presentations/2018/09/18-09-13-The-Supreme-Cannabis-Company-Investor-Presentation-FIRE-1.pdf
[ii] https://www.canopygrowth.com/wp-content/uploads/2018/08/180808-Canopy-Growth-Corporation-Investor-Presentation_FINAL.pdf
[iii] https://www.newcannabisventures.com/aurora-to-invest-7-million-in-acmpr-applicant/
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